NZ: Key apologises to Dotcom for spy blunder

New Zealand Prime Minister John Key has apologised to internet piracy accused Kim Dotcom for "basic errors" made by the government's spy agency which illegally spied on the millionaire.

Mr Key ordered an investigation 10 days ago after being told the Government Communications Security Bureau (GCSB) had illegally spied on Dotcom ahead of a police raid on his mansion on January 20 which saw him and three others arrested.

Its surveillance of Dotcom and his co-accused Bram Van der Kolk was illegal because they are New Zealand residents.

In a media conference on Thursday afternoon, after the release of the investigation's findings, Mr Key said he was "appalled" at the agency.

"It is quite a basic error. They have failed at the lowest hurdle.

"Of course, I apologise to Mr Dotcom and I apologise to New Zealanders," he said.

Mr Key said GCSB had let itself and New Zealanders down, adding that the agency would have to do its own investigation and take appropriate action.

Information about the location of Dotcom and his co-accused was sent to police, but Mr Key said he did not believe any of the information collected had been passed on to the FBI.

He doubted the information would be admissible in a court.

The report by Inspector-General of Intelligence and Security Paul Neazor says the GCSB relied on the police's information about Dotcom and Van der Kolk's residency status and did not check further.

Mr Key says that error was compounded after the surveillance operation ended "by a simply wrong interpretation of the law".

The confusion over Dotcom's residential status arose because he gained residency offshore under the Investor Plus category in November 2010, after investing $NZ10 million in government bonds.

However, before he arrived in New Zealand, the new Immigration Act came into effect on November 29, 2010, and deemed him to hold a residence class visa from that point in time.

Police did not recognise that as the holder of a resident visa, he was a "permanent resident" under the GCSB Act, the report says.

Mr Key said it was unacceptable that the GCSB had relied on the police information.

GCSB director Ian Fletcher apologised to Mr Key, and assured him he will "take every step to rebuild public confidence in his organisation”.

Mr Key has also sought an assurance that there are no other cases of people's communications being intercepted unlawfully.

The GCSB will review cases back to 2009 when the Immigration Act was changed.

The surveillance of Dotcom and Van der Kolk took place from December 16 to January 20, but the agency apparently only realised its blunder earlier this month, and informed Mr Key days later.